Asia Pacific Office Forecast 2018

Set for Continued Strength

The Asia Pacific economy performed better than we expected, mostly thanks to improved global demand driving stellar export and manufacturing performance. We have had a variety of mini-shocks, some geo-political largely arising from tensions in the Korean peninsula while others being domestic such as the introduction of the Goods and Services Tax (GST) in India that caused sentiments to fall temporarily in the region’s third largest economy. Nonetheless, our property markets have shrugged off these noises. Occupier demand accelerated in many markets, with office absorption levels across the region posting their highest levels in 2017. Investment volumes also set a new watermark last year, with activity on a sector basis peaking across all asset classes with the exception of retail, where volume is on par with 2013. Further, blockbuster transactions refused to dry up especially in Hong Kong, which saw the largest ever land and office transactions recorded globally. In Japan, the most notable transaction occurred in Yokohama, just outside of Tokyo, indicating that investors are creatively looking outwards to search for opportunities.

In 2018, the region will continue to benefit from the global recovery in terms of increased demand and agenda of reforms. Against this strong backdrop, central banks will begin normalizing monetary policy, with the Bank of Korea already lifting interest rates for the first time since 2011. However, the low inflation environment means a gradual approach. We expect that same strength to hold in the property markets, with office occupancy and rent growth anticipated to remain at healthy levels even as new supply peaks in 2018. Investment activity should be no different, with transaction volumes expected to edge higher in 2018. We explain below our reasons for optimism.

Key takeaways:

Goldilocks economy or a rising tide.

Either way, the region’s office property markets are set for continued strength, driven by the synchronized global recovery that can only bolster Asia Pacific’s already compelling economic fundamentals.

The best is yet to come for the office leasing market.

Take-up levels across the major cities tracked in Asia Pacific are set to surge to their highest levels in 2018, at 120 msf.

Unabated building boom.

After completion of over 100 msf of office space in 2017, options for tenants are set to increase further with peak development of nearly 160 msf in 2018.

Rents will live up to their pricey reputation.

Several gateway markets will continue to report record rents in 2018, while rent growth in the emerging markets is expected to persist despite a substantial supply pipeline.

The investment race is still on.

We see little signs of investment demand slowing as conditions that have catapulted 2017 to its current brisk levels are expected to be maintained this year.